Want to Charge for Digital Content?

Paid content—what's the problem? The London Times reportedly lost nearly 90 percent of its online readers when it introduced paid content in July. Does this mean that paid content for newspapers and magazines is doomed to failure? Maybe. Or maybe not. After all, how can newspaper and magazine publishers expect their readers, who have enjoyed free online content over the past 10 years, to suddenly and willingly pay for the same content? Patience is the key, and good coordination. The challenge is to clearly communicate to readers that online content is also worth their money. Because let's face it: If something is free, it must not be worth anything. As long as only a handful of publishers switch to "all paid" content like the Times did, while others offer "all free" (the Times' competitor The Guardian even offers its readers the print edition free of charge) and the majority offers a mixture of free and paid content (the "freemium" model), customers will continue to say "no" to all paid content. Without changing the way readers look at online content, paid offers will remain on the fringe of online media. How can you solve the paid content problem? Where is the publishing market headed? Which model will attract the most readers and generate the highest profits? No one seems to know right now. And that's why every publisher should systematically analyze its targets, opportunities and the impact of paid content offers. Publishers who complete these critical steps will be better prepared to actively shape the market. If they don't, they run the risk of being left in the wake of the sector's developments. To successfully push paid content, publishers must do much more than simply stick a price tag on their online content offers. They must also analyze what they offer and to whom they offer it: the target groups. The following steps can help develop a coherent paid content offer: 5 Steps to a Successful Paid Content Offer 1. Clearly define your paid content strategy. Even under the best circumstances, paid content will only be one of several revenue sources in the future. That's why publishers must determine the profit potential of paid content offers today, especially in comparison to advertising. This is the only way they will know how many readers they can afford to lose today, tomorrow and the day after due to conversion to a paid content model—which is not an easy task. Publicly available research data sends encouraging signals (i.e., statistics), but these statements come off as overoptimistic and need to be put into context: If there is no "free" alternative for the equivalent content, many more users may pay for it than if the majority of news content is freely available. The comparison to online gaming seems to be a better fit. There, a mere 3 percent to 5 percent of users of "free-to-play" browser games pay for additional advantages in the game. The most logical approach from today's perspective would be to gradually expand the paid content areas. Yet how this works exactly and its impact on the advertising market must first be carefully examined. 2. Use value-oriented pricing as your basis. One of the fundamental rules of pricing is that your customers will only pay for something if the value of what they gain is greater than what they are sacrificing. In other words, the value must be greater than the price. Facing an online content culture in which many offers are "on the house," paid content must provide readers with clear added value. This is not found in catchy headlines and news agency reports, but in outstanding content. Added value also can be generated through channel-specific preparation (printed newspaper, classic website, apps) and easy paying methods. 3. Develop customer-oriented offers. The reader as a potential buyer must be the focus of the publisher's attention—much more than they were in print-only times. Yet all too often the reader is regarded as an unknown, and this is one of the biggest problems in publishing. In a print-focused world, there was only one version of the magazine or newspaper. With online media, however, various customer segments can be addressed with targeted offers. Due to the diversity of customers in terms of their willingness to pay, their content needs and channel preferences, customer knowledge and customer segmentation must form the basis of all steps leading to paid content. Publishers can only develop a customer-specific offer (and weigh the cannibalization risks for print revenue) if they know for whom they should customize their paid offers, and what, how, where and when the target group reads (and how much they are willing to pay for it). A classic (older) newspaper reader, for example, with a print subscription but no interest in an iPad, could be persuaded to subscribe to a print-online package, which offers online access in addition to the print edition. For younger target groups who read only sporadically, but use all channels, the offer could focus on online content and mobile Internet content. This is no small task. The recent backlash caused by Time magazine with its paid-content strategy (where consumers are offered an abridged version of a story and can only read the article in its entirety if they subscribe to Time or buy the $4.99 app) illustrates the difficult challenge. In its attempt to develop a good, customer-oriented offer that takes full advantage of different content-delivery options, Time ended up upsetting its readers. The magazine's decision to offer certain content pieces only through its print version and iPad app, thereby making them unavailable online (not even available behind a pay wall), caused a great deal of furor. Readers felt pressured to buy a print version (or an iPad and the app) to gain access to content they would be willing to pay for online. 4. Select the best price model. Online media is a good platform not only for diverse offer models, but also for alternative price models. Classic models such as pay-per-article models and monthly subscriptions are only two of many possibilities. What about offering infrequent readers a pre-paid model in which they can read a specific number of articles per month or year? In contrast, heavy readers would probably be better off either with a monthly package that includes the first several articles, or with a staggered model in which the first 10 articles are more expensive than the next 10, or with a "cost airbag" that covers all monthly spending. No matter how you look at the situation, one thing is clear: There is no "one size fits all" offer or price model. After all, there is no "one" reader. 5. Set your price level. So what's the right price? There is no clear-cut answer. It depends on the offer, the target group and the price model. Having said that, several different price ranges for various paid content categories already exist. Simon-Kucher & Partners—a global consulting firm specializing in product pricing and marketing strategy—has observed, for example, that consumer magazine articles tend to be in the lower price range, while trade journal articles are usually more expensive. (See the chart of current price ranges.) While U.S. newspapers still struggle to find the right price for digital content, the few newspapers that already offer paid content charge heavily for their online content. Compared to heavily discounted print subscriptions, the prices for paid content subscriptions seem to include a real premium—or to target a customer segment that highly values the advantages of online content subscriptions. Magazines also offer a wider range of premium add-on features than newspapers do, but newspapers tend to charge much more per unit of time than magazines do for their online service. Other than in Europe, offers for individual articles cannot be found very often in the U.S. newspaper landscape; more lucrative subscription models seem to prevail, mostly within a freemium model that allows free access to selected articles (or the first X articles per month). The New York Times already ventured into prepaid offers, as it sells individual online articles from its archives for $3.95 and a 10-article package at a discounted price for those who know they need access to more than one article. Start Taking Your First Steps … No single answer exists as to how paid content offers should be priced. But the five steps described here can certainly lead you in the right direction. The first step (strategy) is to explore which offer prices (for articles, apps, online subscriptions, etc.) will generate the highest profits. You must invest time and effort in researching your readers' appetite for paid content in a realistic market situation (i.e., with "free" offers still out there). You must factor in this market backdrop when determining how many readers and how much advertising income you are willing to sacrifice due to paid content. The second step (value orientation) involves determining which price-performance ratio your paid content offer provides up against the competition. Then, in step three (customer-oriented offer), you must ascertain which customer segment you should approach. When designing your offer and creating a customer-specific price model, you must not only know the reading patterns of your customers, but also determine the possible cannibalization risks that could decrease your print revenues (step four, the price model). This must be checked before you set the price level of your publishing portfolio offers (step five, price level). None of these questions are easy to answer—all the more reason to get started immediately. PE Annette Ehrhardt (annette.ehrhardt@simon-kucher.com) is a senior director at Simon-Kucher & Partners in Zurich and an expert in the media and telecommunication sectors. She is the joint leader of the firm's European business in the media sector and closely follows global developments and trends in online publishing. Get more advice on pricing and overall mobile strategy at the Mobile Strategy Summit during the Publishing Business Conference & Expo (PublishingBusiness.com), April 4-6, NYC.

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Want to Charge for Digital Content?

Annette Ehrhardt

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Annette Ehrhardt